ECB meeting: Draghi is buying time

Yann Quelenn Swissquote Bank Ltd

The ECB meeting did not bring anything new on the table. The European Central Bank has held its rates unchanged and increased its forecast for growth for the next years. In addition, officials believe that the inflation won’t reach the target by 2020. This is what we call “Buying Time” to actually let inflation run.

It is without surprise that ECB members renewed their commitment regarding the asset purchase program that should run until next September. The amount added on the overall money supply each month is clearly massive and growth is exponential. Mario Draghi was very happy of “the strong pace of economic expansion” as well as the usual “improvement in the growth outlook”. Unfortunately we did not have a word concerning the cost of the growth. The truth is that one euro of growth costs way more than what it brings.

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As for the Fed, the key for the ECB is to let inflation run without raising rates in order to kill the massive debt accumulated. By stating that the inflation is too low, the ECB is selling a dovish message that markets are too happy to buy as assets never stops to increase. And then the ECB is getting time hoping that inflation goes higher.

Author

Yann Quelenn

Swissquote Bank Ltd

Yann Quelenn is a Market Analyst at Swissquote Bank with strong technical and financial background. Previously, he worked as FX Trader at Banque Privée Edmond de Rothschild and as Portfolio Manager at Polaris Investment in Luxembourg.

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